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Wednesday, October 24, 2012
If you're still trading with "Peak Oil" in mind, you're nuts. We may have just found another Bakken...
For those of you who aren't familiar with the theory... Peak Oil is the popular idea that crude oil production "peaked" in 1970... and that we've used up more than half of the world's supply. To many people, that spells the end of the "oil age"... and a steady increase in the price of oil.
I'm a scientist. So I rely on facts to form my investment hypotheses. And the facts say that's a load of rubbish. As I showed you back in August, U.S. oil supplies are on the rise.
Most of the new oil comes from well-known shales all over North America... where massive supplies of oil remained hidden deep underground. Thanks to the recent advent of improved drilling technologies, we are "unlocking" these vast resources. American oil production is booming. And the Bakken field is the poster child of this boom.
The Bakken is an oil-soaked package of rocks that lies beneath 90 million acres of North Dakota, Montana, and parts of Canada. Continental's success in the area sparked the giant rush into the Bakken that helped rewrite U.S. oil history. Today, 10% of U.S. oil production comes from the Bakken.
And it's about to become even better...
Last week, I was in Miami for the Canaccord Genuity Global Resource Conference, where I saw a presentation by oil producer Continental Resources (NYSE: CLR). This $14 billion giant is the No. 1 producer and land holder in North Dakota's Bakken shale.
Continental is a driving force in the energy industry. So when it unveiled its latest coup, I was shocked. You see, Continental found a new oil play, right under the noses of the major oil companies.
It's called the South-Central Oklahoma Oil Play (or "SCOOP"). And it's pure genius.
Oklahoma has been a vibrant oil production site for over 100 years. But in all that time, no one realized there was a world-class oil shale sitting directly under their feet...
The first commercial well in Oklahoma – the Nellie Johnson No. 1 – was completed in 1896. Since then, oil companies have found 60 fields that produced over 3.2 billion barrels. And in 2005, the oil industry opened up the Woodford/Cana shale, which produces dry natural gas.
As gas prices declined in 2008 and 2009, the Woodford fell in popularity. Companies pulled out. By June 2010, there were 27 rigs operating there. As of this month, there are only five left. Oil companies missed a huge opportunity.
The companies that targeted the Woodford shale started in the shallowest part of the basin. And when they found dry natural gas in the shallow part, they gave up on the rest of the basin because they figured it would be gas, too. They were wrong.
Continental's geologists took a different tack. They explored deep below the three most productive counties... and found a brand-new oil shale: SCOOP.
SCOOP underlies about 3,300 square miles of south central Oklahoma. And Continental believes the 265 square mile area it operates will produce 1.8 billion barrels.
That is equal to more than half of the oil recovered in 100 years of conventional drilling in Oklahoma. And those wells will return between 40% and 55% on Continental's investment.
One single field – about 3.6% the size of Oklahoma – could hold billions of barrels of recoverable oil. And companies with smart geologists are hungry for the next big discovery.
This could be the site of the next boom. It's yet another reason to avoid broad bets on higher oil prices... and instead, stick with the companies who are selling the services and equipment needed to keep the boom going.
The resource sector can produce incredible gains – if you know how to play it. To take full advantage, catch up on some of Matt's favorite rules to profit…
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